FOREX-Yen near 2-1/2 year low on expectations for bold BOJ easing

Thu Jan 17, 2013 11:25pm EST

Related Topics

* Markets positioning for bold action from BOJ

* Yen near 2-1/2 year low vs dollar

* Dollar/yen may target 90.75 and then 93-95 -trader

* But profit-taking may weigh on dlr/yen after BOJ

By Masayuki Kitano and Ian Chua

SINGAPORE/SYDNEY, Jan 18 (Reuters) - The yen hovered near a 2-1/2 year low against the dollar on Friday following a dramatic selloff as markets positioned for the Bank of Japan to take bold policy action to tackle deflation.

Sources familiar with the BOJ's thinking told Reuters the central bank, under relentless pressure from Prime Minister Shinzo Abe, will consider making an open-ended commitment next week to buy assets until 2 percent inflation is foreseen.

Such a move would represent a marked turnaround for a conservative central bank that has repeatedly resisted calls for bolder action. It would also far exceed expectations the BOJ would opt for a more conventional step of topping up its asset-buying programme at its Jan 21-22 meeting.

The dollar edged up 0.2 percent to 90.00 yen, hovering near the previous day's high of 90.14 yen set on trading platform EBS, the greenback's strongest level against the yen since June 2010.

On Thursday, the dollar had jumped 1.7 percent versus the yen, its biggest one-day percentage gain since Oct. 31, 2011, the day the dollar hit a record low of 75.311 yen and Japan spent a record 8 trillion yen in unilateral intervention to curb the yen's rise.

While the dollar could run into some profit-taking after the BOJ's policy decision on Tuesday, any decline may turn out to be mild, said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

"There might be a dip after the BOJ, but the drop could turn out to be surprisingly shallow, and I think from there the direction will be a rise towards 93 yen to 95 yen," he said.

A possible short-term target for the dollar is 90.75 yen, Maeba said, adding that a breach of that level may open the way for the greenback to head higher.

On technical charts, initial resistance for dollar/yen is seen around 90.34, the 76.4 percent retracement of its May 2010-Oct 2011 fall. A break there brings the 2010 high of 94.99 in focus.

If the BOJ were to shift to an open-ended asset buying scheme, an additional focal point would be the pace of asset purchases, said Rob Ryan, strategist for RBS in Singapore.

"All they really have is signalling. That they are going to do something different, or they're going to do it in a different way," Ryan said.

"What will be important is an open-ended commitment...plus an increase in the rate of purchases," Ryan said.

Traders said the risk now, of course, is if the BOJ undershoots expectations.

"We think there is some risk of disappointment at the BOJ meeting and scope for a yen rally. It is now consensus that the BOJ will move to a 2 percent inflation target. However, more aggressive measures may not come until closer to the nomination of the new governor/deputy governors in Q2," said Kiran Kowshik, strategist at BNP Paribas.

Underscoring the yen's weakness, the Australian dollar scaled a high around 95.00 yen on Friday, its highest level since August 2008.

Earlier, the Australian dollar gained a brief lift against the greenback after data showed that China's economy grew 7.9 percent in the fourth quarter from a year earlier, snapping seventh straight quarters of slowing expansion.

The Aussie dollar, however, later sagged back and last fetched $1.0516, down 0.3 percent on the day.

The euro edged up 0.1 percent to $1.3380, hovering near an 11-month high of $1.3404 set on Monday.

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